Study says cost of lithium ion batteries could drop by two-thirds

As carmakers seek greener solutions to automobility, lithium ion batteries have become increasingly important. Their higher storage capacity and relatively compact size makes practical electric vehicles (EV) like the Nissan Leaf and Ford Focus Electric possible, not to mention “extended range” electrics like the Chevy Volt and Fisker Karma. Luckily for EV buyers, a new study says the price of lithium ion batteries could drop by two-thirds before the decade is out.

According to the study, published by McKinsey Research, the price of a “complete automotive lithium ion battery pack” could drop from the current price of $500 to $600 per kilowatt hour to $200 per kWh by 2020.

The study also said that battery prices will continue to drop, going as low as $160 per kWh by 2025.

The study attributes most of the decrease in cost to more efficient manufacturing. As equipment becomes standardized and better processes for building battery packs are employed, the price of each pack should go down. McKinsey expects this to start happening around 2015.

The price of battery components is also expected to drop, which will make the batteries themselves cheaper. This tendency will increase as more batteries are produced. It’s the same mass production phenomenon that made the Model T so affordable.

John Newman, the study’s co-author, thinks cheaper batteries will free up car companies to design cars that appeal to people on an emotional level.

“Ultimately, you’ve got to get someone excited to buy the vehicle. I think that OEMs or the car makers or the designers [have to] figure out what form of energy storage is the most exciting to the person who is buying the car,” Newman told Automotive News (sub. required). “It could be range, could be acceleration, could be onboard storage. We’ll have to wait for the market to figure it out.”

With the scramble to meet stricter emissions regulations and CAFE targets, desirability has been one of many priorities car designers have had to juggle. In addition, practical EVs are still in their infancy, so designers haven’t fully explored every option.

Cheaper lithium ion batteries could also find their way into more conventional cars. If a battery pack is no longer a major expense, carmakers might build more mild hybrids like the Chevy Malibu Eco.

The most likely outcome, however, is that manufacturers will offer more EVs. If electricity makes financial sense, it could also lower a company’s CAFE score and give it a nice, green image. The only question is: will there be enough charging stations to support an influx of EVs?